COVID-19 has generated a new normal to which we all have to adjust. Here’s an outline of what’s changing right now and how to keep on top of your finances.

Savings

What’s happening?
  • Australians are, on average, currently saving a massive 20% of their disposable income, which is more than three times what they usually save (around 6%).1
  • The next 12 months could be difficult financially as support measures such as JobKeeper and mortgage deferrals start to wind down.
Top tips:
  • Putting savings away ‘just in case’ is highly recommended in times of economic downturn, as it provides a buffer in case you lose your job and can’t afford essential expenses such as mortgage repayments and bills.

Spending

What’s happening?
  • The gradual shift away from cash and towards electronic payments has escalated over the past six months as part of the strategy to reduce contamination. ATM withdrawals in April were more than 40 per cent lower than a year earlier. Additionally, there has been an increase in ‘buy now, pay later’ services.2
Top tips:
  • While tap ‘n’ go payments are convenient and more hygienic, it can also make it easier to lose track of your spending, so be careful and remember that ‘it’s still money’. Buy now, pay later services are also very convenient, but they have the potential to affect your credit history if you don’t pay, so it’s essential to be vigilant and careful with these options.

Employment/wages

What’s happening?
  • The next year or two could be marred by uncertainty regarding jobs. As financial support measures are reduced, there will be some businesses that are forced to close, putting their employees out of a job.
  • Some businesses will survive, but will have to reduce the number of hours they pay their employees, leading to underemployment and, potentially, pay cuts.
  • Those who have already lost their jobs and are looking for a new job will be competing with more people for fewer jobs.
  • Most Australians can expect at least another financial year without a pay increase.
Top Tips:
  • The post-COVID workforce is likely to look a little different, so skill up and adapt to stay competitive. Creativity and innovation will be more highly sought after as employers look for different ways to do business. Flexibility and adaptability are essential as employers want to know staff are willing to change how they do things if necessary for the sake of the business. Finally, digital skills are a must – make sure you are savvy with all the latest technology so you can work from home successfully.

Buying habits

What’s happening?
  • Fear of catching the virus in large chain stores and shopping centres, as well as the desire to support local businesses during the pandemic, has pushed people towards making purchases from alternative stores, and trying new products and brands.2
  • Many people have upped their online purchasing to keep away from the shops altogether, even older Australians.
  • Digital consumption is higher than ever. The need or desire to spend more time at home has seen an increase in purchasing of subscription television, apps, games, music and online gambling, as well as booking online medical appointments and taking online classes.
  • These trends look likely to stay even after COVID-19 is no longer an issue.3
Top Tips:
  • Purchasing online is more accessible and more convenient, so it’s easy to spend more and buy things you don’t need. Think twice about your purchases and whether you really need them.

Borrowing

What’s happening?
  • Depending on your employment circumstances, you may not be able to borrow as much as you could have pre-COVID. Lenders are being extremely vigilant and if you are in a ‘high risk’ industry, you may need extensive documentation for your loan approval.
  • Interest rates are likely to stay low for the next few years, which means it’s a great time to borrow and there are many attractive loan deals on the market.
Top Tips:
  • Arranging a loan through an experienced mortgage broker is more important than ever. Brokers know which lender will work best for your individual circumstances and how to present your loan application to give you the best chance of success.
  • Low interest rates mean that it’s a unique opportunity to pay down your loan quickly so you pay less interest over the long term.
  • If money is tight, you may need to adjust your loan (consider interest only or extending your loan term) to reduce your outgoings. Keep in mind this increases the interest you pay over the long term and should be considered a temporary solution.
  • Talk to your lender now to work out the best solution if you feel you will be unable to make repayments on your mortgage once your mortgage deferral period ends.

 

SOURCES: 1https://tradingeconomics.com/australia/personal-savings, 2https://www.smh.com.au/business/the-economy/how-the-pandemic-is-changing-the-way-we-shop-and-what-we-re-buying-20200821-p55o5t.html, 3According to the Alpha Beta Spending Tracker https://alphabeta.com/illiontracking